Credit cards are a widely used payment option that allows the holder to borrow funds for purchase or money withdrawal to a certain allowed limit. They have become a popular way to pay for purchases, as they are easy to use, offer rewards, and help build credit.
People can use credit cards to build and keep up a good credit score, which can help them get cash advances or home loans in the future with lower interest rates.
They can also serve as a safety net for unexpected expenses or crises, giving people time to pay for necessities.
One should be cautious when handling expenses through a credit card otherwise you will end up paying a higher interest rate or have accumulated debt. When used correctly they can be a helpful tool for managing money and making everyday purchases.
As Oprah Winfrey once said, “The way you use your money reflects your values.”
In this blog, we will delve deeper into the benefits of credit cards and how they can be effectively used to work on financial prosperity.
Benefits of Credit Cards in 2023
#1 Buy Now Pay Later
Credit cards provide the convenience of purchasing defer payments.
This means that you can make a purchase now and pay for it later. This feature can be particularly helpful when making big-ticket purchases, such as a new appliance or a holiday package.
Most credit cards offer an interest-free period of 45–50 days, which means that if you pay your bill within this period, you won’t be charged any interest. This gives you the flexibility to manage your expenses and pay for them when it’s convenient for you.
For example, if you want to purchase a new laptop but don’t have the funds available right now, you can use your credit card to make the purchase and pay for it over time. This can help you manage your finances and avoid putting a strain on your budget.
#2 Cashback and Rewards
Cashback and rewards programs are one of the primary advantages of using a credit card.
Credit card organizations offer prizes, points, or cashback on each exchange made using the card.
These prizes can be recovered for different things, for example, stock, gift vouchers, and many more things.
For example, HDFC Bank has a rewards program in which customers earn two points towards a prize for every Rs. 150 they spend on their credit card. These award points can be recovered for different things like flight tickets and lodging stays; from there, the sky is the limit.
#3 Strong Buyer Protection
Credit cards provide users with strong buyer protection, making them a secure payment option.
In the event of any fraudulent activity on your credit card, the bank will protect you from any liability.
This means that if someone makes a purchase using your card without your consent, you won’t be held responsible for the charges.
In addition, most credit cards come with a “zero-liability” policy (Mastercard Zero Liability Protection Policy | Zero Fraud Liability), which means that you won’t be held responsible for any unauthorized transactions made on your card. This feature provides an extra layer of protection for users.
For example, if you use your credit card to purchase a product online, and it turns out to be defective or doesn’t arrive at all, you can dispute the charge with your bank.
They will investigate the issue and issue a chargeback if necessary. This means that you will receive a refund for the purchase amount.
#4 Helps Manage Big-Ticket Expenses
Credit cards can also be helpful in managing big-ticket expenses.
They provide a line of credit that can be used to finance purchases that might be difficult to afford all at once. This can be particularly useful for unexpected expenses, such as car repairs or medical bills.
Credit cards also offer various payment plans that can help you manage your expenses. Some credit card companies offer installment payment plans that allow you to pay for your purchase in monthly installments.
This can help you spread out your expenses over time and avoid making a large upfront payment.
Credit cards offer a great deal of flexibility when it comes to managing your finances.
You can choose to pay off your balance in full each month, or you can carry a balance and pay it off over time.
This allows you to manage your cash flow and make purchases when you need to, without having to worry about having the funds available upfront.
In addition, credit cards also offer the option to convert large purchases into EMIs (Equated Monthly Installments), which makes it easier to take charge of your current financial situation over time.
Bonus Point: What You Need to Know About Credit Card EMI
- The interest rate for EMI for One Year (Post Purchase) starts at 12.5% per year and goes up from there.
- Processing Fee: Nil to 3%
- Pre-closure fees range from nil to 3%.
- The minimum transaction amount varies from bank to bank.
- Tenure: Some banks offer up to 48 months.
#6 Travel advantages
Credit cards offer a scope of benefits that can assist you in getting a good deal on your excursions.
For example, many credit cards come with rewards programs that offer points or miles for each purchase you make using the card.
You can use these points or miles to book flights, remain at lodgings, and pay for other travel costs.
Credit cards also give you access to airport lounges, travel insurance, and other perks that can make your trip more pleasant and comfortable.
Some credit cards offer free lounge access, and that implies you can unwind and loosen up in an open setting while at the same time sitting tight for your flight.
For instance, assuming you are a regular traveler, you can consider getting a credit card that offers travel benefits. A high annual fee is a common feature of these cards, but the benefits they provide are often worth the cost.
#7 Insurance advantages
Many credit cards additionally offer protection benefits, which can offer monetary assurance in the event of unforeseen events.
For example, some credit cards provide purchase insurance, which means that if you use your credit card to buy something and it is stolen or damaged, the card issuer will reimburse you for the cost of the item.
Credit cards also offer other kinds of protection, like travel insurance, medical insurance, and insurance for rental cars.
These advantages can assist you with getting a good deal on insurance installments and providing monetary security during crises.
This can assist you with getting a good deal on insurance payments and providing financial security in the event of mishaps or harm.
#8 Helps build a credit score
One of the most significant benefits of using a credit card is that it can help you build your credit score. Your credit score is a three-digit number that indicates your creditworthiness to lenders.
A higher credit score means that you are more likely to get approved for loans and credit cards, and you may also qualify for better interest rates and terms.
Using a credit card responsibly, such as by paying your bills on time and keeping your credit utilization ratio low, can help you build your credit score over time.
This can be especially beneficial if you are planning to apply for a loan or mortgage in the future.
Credit cards have become an integral part of the Indian financial system and provide their users with a wide range of benefits. When used regularly, credit cards offer a number of benefits, including convenience, safety, rewards, and even cash back.
Nonetheless, it is essential to remember that credit cards come with specific dangers and obligations too. Exorbitant financing costs, punitive measures, and damage to credit scores are just some of the negative outcomes that can arise from overspending, accumulating obligations, and falling behind on payments.
As the familiar saying goes, “with great power comes great responsibility.”
This turns out as expected for credit cards, too.
While they offer many advantages, it is essential to utilize them astutely and try not to venture into the red.
So, credit cards can continue to be a useful tool rather than a burden if the monthly minimum payment is made in full, spending is tracked, and unnecessary purchases are avoided.
FAQs related benefits of credit cards
What are the 3 advantages of using credit?
Three advantages of using credit are:
Convenience: Credit cards allow you to make purchases without carrying cash or checks, making transactions more convenient and faster.
Building credit: Responsible use of credit can help you build a good credit score, which can help you get better interest rates and loan terms in the future.
Rewards: Many credit cards offer rewards programs such as cashback, points, or miles that can be redeemed for travel, merchandise, or other perks.
Do credit cards save money?
Credit cards can save you money if you use them responsibly and take advantage of rewards programs.
For example, cash-back rewards can help you earn money on purchases you would make anyway, and some credit cards offer discounts or exclusive offers at select merchants. However, if you carry a balance and accrue interest charges, or pay annual fees, then credit cards may end up costing you more money in the long run.
How to use a credit card for beginners?
A: If you are a beginner, here are some tips for using a credit card responsibly:
Pay your bill on time and in full every month to avoid interest charges and late fees.
Monitor your spending and stay within your budget.
Keep your credit utilization ratio low (i.e., the amount of credit you use compared to your credit limit).
Choose a credit card with a low-interest rate and no annual fee.
Consider using your credit card for small, regular purchases and paying them off each month to build credit.
What is the starting limit of a credit card?
The starting limit of a credit card in India can vary depending on the issuing bank and the creditworthiness of the applicant. Generally, banks offer credit cards with starting limits ranging from Rs. 10,000 to Rs. 1 lakh.
However, some premium credit cards may offer higher starting limits.
The credit limit of a credit card is determined based on various factors such as the applicant’s income, credit score, credit history, existing debts, and repayment capacity. Banks usually evaluate these factors before deciding on the credit limit for a credit card.
It’s worth noting that the starting limit is not a fixed amount and can be increased or decreased based on the cardholder’s credit usage and repayment behavior.
Can we use 100% of a credit card limit?
You can use 100% of your credit card limit, but it is generally not recommended. Using too much of your credit limit can negatively impact your credit score and make it more difficult to pay off your balance in full. It is generally recommended to keep your credit utilization ratio below 30% to maintain good credit and avoid debt.
How to get a 1 lakh credit card limit?
Getting a credit card limit of 1 lakh or more depends on several factors, including your credit score, income, and credit history. If you have a good credit score and a high income, you may be able to qualify for a credit card with a higher limit. However, it is important to use credit responsibly and not rely on a high credit limit to overspend or accrue debt. You can also try contacting your bank or credit card issuer to request a higher credit limit.
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